Global agencies see India’s growth ringing louder; raise FY27 GDP forecasts on upbeat demand and investment sentiment

India's growth outlook received a broad-based upgrade from multiple global institutions, with the Asian Development Bank, Organisation for Economic Co-operation and Development (OECD), S&P Global Ratings and Fitch Ratings raising their respective FY27 forecasts on expectations of strong domestic demand, higher investments and better export performance.

The OECD raised India's FY27 growth forecast to 7.1%, up from the 6.3% projected in June, cementing New Delhi's credentials as the fastest-growing major economy.

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The Asian Development Bank (ADB), meanwhile, raised its growth estimates to 7%, from 6.6% in July, citing strong public investment and resilience in services and electronics exports.

S&P Global Ratings, too, did so to 7% from 6.6% previously, while Fitch Ratings raised to 6.9% from 6.4%.

Read more - Global agencies see India’s growth ringing louder; raise FY27 GDP forecasts on upbeat demand and investment sentiment

"Despite supply disruptions and high commodity prices (due to the West Asia conflict), India's economy continues to demonstrate resilience, supported by strong infrastructure spending and growth-supporting fiscal and monetary policies," said Mio Oka, ADB country director for India.

Services Muscle

These upgrades follow stronger-than-expected GDP growth of 7.8% in the June quarter, driven by robust investment demand, resilient consumption, and solid growth in the manufacturing and services sectors.

High-frequency indicators point to strong economic momentum. Investment leads the upturn, with gross fixed capital formation rising 11.9% in Q1FY27, corporate sales up 21.3%, and exports growing 15.9%. Recent numbers also show resilience, with manufacturing PMI rising to a seven-month high of 55.7 in September from 52.8 in August, while services activity increased to 55.8 from 54.1.

Mio Oka added that continued strength in the services sector, including AI-related investments, alongside improvements in agricultural productivity and steady manufacturing growth, would help sustain India's growth momentum.

According to the ADB, domestic demand is expected to remain the main engine of growth in FY27 and FY28, supported by robust tax collections, low interest rates, rising household incomes, and the anticipated revision of government salaries and pensions in FY28.

The OECD, however, noted that despite the recent strong momentum, reduced purchasing power is expected to weigh on growth through the second half of this year, before a gradual recovery in 2027.

To be sure, risks to the growth outlook remain.

The ADB identified prolonged geopolitical uncertainty and El Nino-related disruptions as key risks. Similarly, the OECD flagged a weaker monsoon as a threat to agricultural production.

Inflation, Policy Pivot

Consumer inflation remains within the Reserve Bank of India's (RBI) target range, although pressures from energy and food prices are showing signs of building. The ADB expects FY27 inflation to average 5%, while the OECD and S&P Global Ratings forecast 4.7% and 5.1%, respectively, for the consumer pricing gauge. Fitch expects inflation to climb further to 5.5% by December 2026.

Retail inflation rose to 4.8% in August from 4.5% in July. The central bank targets inflation at 4%, with a tolerance band of two percentage points on either side.

S&P Global Ratings expects the RBI to raise its policy rate by 25 basis points during the current fiscal year. The ADB and OECD similarly anticipate a rate hike to counter rising inflationary pressures.